The NFT bubble isn't popping, but it may have sprung a leak.
A year on from when a single non-fungible token sold for $69.3 million in crypto at Christie's auction house, with the buyer paying to be recorded on blockchain as the owner of a digital file that anyone can see online for free, this weird and wild market is showing some signs of slowing down.
Sales on OpenSea, the largest NFT marketplace, had reached nearly $5 billion in January, a giant leap from the $8 million a year before, but declined to around $2.5 billion last month.
Around 635,000 people bought an NFT last month, for $427 on average, according to market tracker CryptoSlam, down from about 948,000 for $659 in January.
Companies nonethless continue to pile into the fashionable "metaverse", where digital assets like virtual land and clothing for avatars can be bought for cryptocurrency as NFTs. JPMorgan and HSBC are among businesses that have opened virtual venues in NFT-based worlds this year, while YouTube and Instagram also have NFT plans.
"Obviously the enthusiasm and interest that we had at some periods last year is not here anymore," said Pablo Rodriguez-Fraile, a Miami-based digital art collector. "I think we achieved something that wasn't sustainable."
He added that sales had picked up again in recent weeks, though.
Modesta Masoit, director of finance and analytics at NFT research firm DappRadar, said the market was not in overall decline but rather consolidating after its meteoric growth, adding that investor caution following Russia's invasion of Ukraine in late February may have depressed sales.
"Everybody was expecting that there was going to be a consolidation period," she added. "It's not going away, it's just consolidating."
Overall NFT sales have totalled about $11.8 billion so far in 2022, according to DappRadar, excluding $19.3 billion worth of sales from a platform suspected to be dominated by irregular trades, where a small number of accounts trade items back and forth for inflated prices.
Bull To Bear To Ape
NFTs can be exotic and dangerous beasts.
Prices can drop dramatically after an initial surge, in a highly volatile market where the value of an asset depends on its social status.
Nima Sagharchi, head of digital assets at auction house Bonhams, said that in contrast to the traditional art world, the NFT market can see-saw between bull and bear cycles within as little as a week.
An NFT representing a piece of computer-generated abstract images from a collection called Art Blocks would sell for around $15,000 on average at a peak in September 2021, but fetched just under $4,200 last month, according to CryptoSlam.
Meanwhile, Bored Ape Yacht Club NFTs - a set of 10,000 variations on a cartoon primate - still sell for around $300,000 on average.
Buying a Bored Ape - as celebrities including Madonna and Paris Hilton have done - can be considered akin to joining a cross between a members' club and an investment scheme. Buyers often advertise their membership by setting their NFT as their profile picture on social media.
A cryptocurrency called ApeCoin was launched last month, given initially to holders of Bored Ape NFTs as well as the project's founders. Its market cap is already $3.4 billion, according to Coinbase data.
Raoul Pal, a former Goldman Sachs executive, wrote in a blog post that expectations for this token encouraged him to spend around $400,000 worth of the cryptocurrency ether on a Bored Ape NFT.
"Social tokens are the BIG thing," he wrote.